Exclusive | Chinese economist Lu Feng on why the time is ripe for a consumption rebalance
News Summary
Peking University economics professor Lu Feng highlights that China's weak consumption is a long-standing issue that has become particularly pronounced since the COVID-19 pandemic. He attributes this to structural reasons including uneven income distribution, an inadequate social security system, and the "dual economy" effect of the hukou (household registration) system, all contributing to relatively low consumption among certain groups. Professor Lu emphasizes that China has historically directed substantial public resources towards production, technology, and supply-side growth, leading to rapid expansion in these areas. However, this has created a growing contradiction with insufficient final demand, especially weak consumption. He suggests that China's upcoming "next five-year plan" could provide the necessary momentum to shift more public resources to households, facilitating a rebalance towards consumption.
Background
China's economy has achieved rapid growth over the past few decades, primarily driven by investment and exports, with public resources and policies long favoring production and the supply side over final consumption. This development model led to enormous industrial capacity and strong export capabilities but gradually exposed structural problems of insufficient domestic consumer demand. In recent years, as the stage of economic development has shifted and external uncertainties have increased, the Chinese government has recognized the central role of internal demand, particularly consumption, in economic growth. Professor Lu Feng's views reflect long-standing calls within China's economic community for promoting consumption through reforms in income distribution, social security, and the hukou system, which is a key component of the central government's current "dual circulation" development strategy.
In-Depth AI Insights
What are the deeper strategic intentions behind China's consumption rebalance? - Reducing reliance on external demand: Amid increasingly complex geopolitical and trade frictions, strengthening domestic consumption effectively reduces the economy's vulnerability to foreign trade and external markets, enhancing economic resilience. - Fostering more inclusive growth: By improving income distribution, social security, and the hukou system, the aim is to expand the middle-income group and enhance overall social consumption capacity, thereby achieving more balanced and sustainable social development. - Enhancing national strategic autonomy: A robust domestic market and an internal demand-driven economy can provide a more stable foundation for China's development in key industries like high-tech, reducing risks from external containment. How might the "next five-year plan" mentioned by Professor Lu Feng influence investor risk appetite? - Policy certainty and structural shifts: If the five-year plan clearly proposes shifting public resources towards households, it will provide clear policy signals to investors, reducing policy uncertainty and favoring long-term investment planning. - Sectoral opportunities and challenges: Consumption rebalancing implies that traditional heavy industries reliant on investment and exports may face transformation pressures, while industries related to livelihoods, services, and high-tech consumption will see growth opportunities, prompting capital reallocation. - Impact of wealth distribution policies: Should income distribution reforms accompany this, adjustments to taxes and welfare policies might occur. This could introduce short-term uncertainty for some high-profit sectors or high-net-worth individuals, but long-term it helps broaden the consumption base. Given the continued Trump administration, what are the implications of China's consumption rebalance for the global economy and investment landscape? - Mitigating US-China trade tensions: Theoretically, increased Chinese domestic demand could lessen reliance on exports, potentially easing trade surplus pressures with major trading partners like the US, offering new leverage for trade negotiations. - Stimulating global supply chain adjustments: If the Chinese market shifts more towards domestic demand, global companies may re-evaluate their production layouts and market strategies in China, accelerating supply chain regionalization or diversification. - Driving global green economic transition: With consumption upgrades and policy guidance, China's demand for high-quality, environmentally friendly products will increase, potentially driving innovation and investment in related global industries, aligning with global green development trends.